Risk averse

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1.

Strictly, to be 'risk averse' means to prefer a lower level of risk, for any given level of expected return or expected cost.

Therefore, for example, risk averse investors will always require a higher expected rate of return to compensate for any higher levels of risk which they accept.

The assumption that market participants are rational and risk averse is one of the underpinnings of the efficient market hypothesis.


2.

The term 'risk averse' is also used more loosely, to refer to a low risk appetite.


See also